Weekly FX Outlook: NFP likely to be at the forefront of investors’ minds, as members await clarification as to whether Q1 slack was ‘transitory’.

Looking ahead to next week, we begin the week on a quiet note with markets closures in the UK, US and China. However, plenty of data will be on tap for participants to digest, most notably the US NFP report.

The report itself is unlikely to derail the Fed from hiking in June, with futures pricing around 87% of a hike. Although, will be important for normalisation down the line with the recent FOMC minutes noting that it would be prudent to wait for additional data in order to show that the weakness in Q1 was indeed transient. Headline expected at 185k, while wage growth is seen stabilising at 0.3%.

Across the pond, Eurozone nations will report their prelim inflation figures for May, starting with Germany on Tuesday, France to report on Wednesday. Worryingly for the ECB, German inflation is seen tailing off to 1.6% from 2%, which could somewhat dampen expectations of a shift in the ECB’s rhetoric to a less dovish tone in June. Subsequently, this could curb the recent uptick in EUR, which is hovering around levels last seen since Nov’16.

Antipodean watchers will be focusing their attention to the latest Chinese data, in the form of Mfg. PMI on Thursday with analysts expecting the figure to remain marginally in expansionary territory at 50.1. A surprise dip into contractionary territory may well see AUD continue its downward spiral as copper and iron ore prices feel the pressure. Consquently, another leg lower through AUD/NZD may well be on the cards, which already hovers near 5-months lows.

GBP continues to be gripped by Brexit, however the recent polling data has been taking the limelight, as more polls highlighting a narrowing lead for May and her party could well see GBP sub 1.28.

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Dollar Index H4

Technically we expect price to complete the 123 pattern formed last week. A double bottom at last week's WM2 followed by a higher high and a fib for the pullback. A lot depends on the market's view on what the FOMC are likely to do in June and as mentioned in FX weekly outlook, a lot depends on Friday's NFP result. Our 21 and 55 are converging. The H4 stoch says down.

US10Y H4

Price came off the 61.8% fib at last week's WM2 though failed to make a higher high. Price is currently ranging and direction will be dictated by US data and risk events in the week ahead. Keep in mind that Comey is testifying this week though no date has been confirmed yet.

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